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Cattle Number Bulge Begins, Analyst Says
This week may be the start of the bulge in cattle numbers that the industry has discussed for some time.
Don’t forget, September-through-November placements ran 12.4% over last year. Those numbers have to come to town at some point. USDA estimated the week’s kill at 647,000 head. After weeks of smaller-than-expected numbers, this one was finally over our estimate of 631,000. A sizable Saturday effort is what put this one over the top at 58,000 head. This week’s kill was 5.2% over last year.
While this week’s kill could be the start of bigger numbers ahead, don’t forget that last week’s run was quite small at 1.2% under last year. Bulls could suggest that balanced out; these two weeks show no real difference in the general supply story. The past six weeks have averaged 2.7% over last year. Bulls could also suggest this week is a minor anomaly as the advertised showlist was 7,300 head under last year.
Allendale’s current up-front supply estimates show beef production in May at 6% over last year, June at 7% over last year, and July at +6%. These numbers do sound bearish as they come on top the normal seasonal supply increase into summer. They are, however, still a bit under the supply levels that the market had originally expected.
Monthly export data for March was released. Exports last month totaled 260.628 million pounds. That was 11% over last year – wow. It is also a record March export for any previous year! This is even the fifth-best export month of all time (regardless of month). The first quarter wrapped up with a full 730.145-million-pound export. That was 12% over last year, even better than Allendale’s expectation (715.969, +10%). Imports in March totaled 254.239 million pounds. That was 6% under last year. That is an improvement over the +9% and +10% year/year rates posted in January and February respectively. This brought the completed first quarter imports to 721.874 million, 3% over last year. This is better than Allendale’s 755.018 estimate, 8% over last year. This trade data release was supportive for both exports and imports.
One of the big topics the past few weeks has been this large discount between current cattle and June futures. Today’s chart shows this is the widest discount over the past 10 years as of May 3. It also shows an interesting trend. As the years have gone by, the market has taken a larger and larger discount to the June in the spring than previous. This discount will be narrowed in the by end of June. We may do it with falling cash cattle prices, higher futures, both meeting in the middle, or perhaps both moving in the same direction but one moving even more than the other. In our opinion, a healthy discount is needed in summer futures. Those fall placements will come to town and they will do so at the largest supply time of year anyway. However, we suggest this market may still be exaggerating the potential decline in cash cattle up ahead.
Allendale’s current price forecast is $110 for June futures, $109 for August, $112 for October and December. While lowering supply estimates is what we have to do for short term, we would feel more comfortable lowering the late-year supply numbers based on expectations for low placements right now.
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